Public Service Pensions Update | April 2022

In this edition, we look at two recent developments relating to the McCloud remedy, flag two new/updated guidance notes and look at some recent Pensions Ombudsman decisions.

If you would like to discuss any of the changes in this newsletter, please contact one of the experts listed below.

McCloud remedy | Threat of legal action over immediate detriment cases

The Local Government Association, on behalf of fire and rescue authorities, and the Fire Brigades Union have written a joint letter to the government in which they refer to the possibility of legal action unless steps are taken to (re-)establish a framework to allow affected Firefighters' Pension Scheme members, who take their benefits before the McCloud remedy legislation is implemented, to be placed in the position required by the McCloud decision even though the remedy legislation has still to be implemented.

The letter follows the "withdrawal of the Home Office Guidance and the position of HM Treasury, as expressed in the accompanying note, of opposing any possible solution for scheme members other than waiting for final regulations in October 2023".

Costs cap | McCloud remedy costs cause ceiling breaches

The Government Actuary's Department (GAD) has published cost cap valuations, as at 31 March 2016, of the Firefighters' Pension Scheme (England), the  Firefighters' Pension Schemes (Wales), the Police Pension Schemes (England and Wales), and the Civil Service Pension Scheme.

All of the valuations except the one for the Civil Service Pension Scheme show a "ceiling breach" as a result of the costs of the McCloud remedy being included in costs cap costs.

As we reported in the last edition, the Public Service Pensions and Judicial Offices Act 2022 contains provisions which mean that ceiling breaches from the 2016 cost cap valuations have no effect.

This means that members and employers should not see any increase in contributions or reduction in benefits as a result of the costs of the McCloud remedy being included in costs cap costs. However, as a number of Unions are arguing, the inclusion of those costs also means that there won't be any reduction in contributions and/or increase in benefits.

Updated guidance | Staff transfers

The GAD has also updated its guidance on staff transfers in public service pension schemes to reflect changes to broad comparability assessments and pension bulk transfers. GAD's work in this area was suspended in 2020 in response to the McCloud judgment, but GAD will now start a rolling programme including recommencing some broad comparability work initially only involving the assessment of career average revalued earnings benefits.

Judicial pensions | New scheme

The regulations introducing the new judicial pension scheme have been made. You can read more in our January 2022 newsletter.

Pensions Ombudsman | Early resolution service 

The Pensions Ombudsman has published a factsheet on its early resolution service, "explaining what it is, how it operates and options the parties to a complaint have".  Anyone handling pensions complaints and internal dispute resolution procedure (IDRP) complaints should read the factsheet. Funds should also check that the way they signpost members for help with unresolved pensions issues and the way they signpost them for help with general questions about pensions reflects the current division of roles between the Pensions Ombudsman's office (including the ERS) and the Money and Pensions Service.

Pensions Ombudsman | Various

The Pensions Ombudsman has handed down decisions in three complaints relating to ill health early retirement and early payment of benefits on ill health grounds, and one decision on recovery of an overpayment resulting from an abatement error. All four decisions contain useful reminders of key principles.

Local Government Pension Scheme (LGPS) – London Borough of Waltham Forest Pension Fund (CAS-29778-J8R1)

Upheld – a complaint by a member of the LGPS in relation to her application for active member ill health early retirement benefits, and delays in handling her stage two IDRP application.

Ms G's employer terminated her employment with effect from February 2016, on grounds of incapability due to ill health. The possibility of applying for  ill health early retirement benefits was not discussed. Ms G later applied for ill health retirement benefits on the active member basis. The employer obtained a medical opinion, but this considered the state of Ms G's health as at the date of medical examination in March 2017 rather than at the date her employment ended. The employer then instructed a different independent registered medical practitioner (IRMP) who, after some correspondence, confirmed that, in their opinion, Ms G did not meet the conditions for payment of an ill health early retirement pension at the date her employment ended. The employer decided that ill health retirement benefits should not be paid and Ms G made an IDRP application in respect of that decision. The stage two decision-maker took around 16 months to reach a decision. It directed the employer to consider Ms G's application afresh.

In a decision which discusses the key considerations for employers when handling an application for active member ill health early retirement benefits, the Pensions Ombudsman considered the offers already made by the parties. He then directed the employer to instruct a new IRMP, consider Ms G's application again, and pay £1,000 to her for the distress and inconvenience caused by the way it had handed her application. The ombudsman also directed the stage two decision-maker to pay £500 for the distress and inconvenience caused by its delay in handling the stage two IDRP application. Ms G was not awarded her legal costs.

Local Government Pension Scheme (CAS-50233-Q4J9)

Not upheld – a complaint by a member of the LGPS in relation to his application for early payment of deferred benefits on ill health grounds.

The decision reviews the key considerations for employers when considering an application of this kind. It also confirms that, where a member believes they meet the conditions for early payment following appointments attended and treatment received in the period after the (former) employer took its decision, the correct course of action is for the member to make a fresh application for early payment. An IDRP application is only concerned with the employer's original decision. There is no requirement for IDRP decision-makers to consider whether the member's health has worsened since the original IRMP gave their opinion.

Principal Civil Service Pension Scheme (CAS-42982-Y3G8)

Partly upheld – a complaint by Mr S that Mrs S' application for ill health retirement pension was mishandled and that she suffered financial loss because she was not granted a serious ill health commutation lump sum.

In a decision which confirms the need to work quickly and with sensitivity in cases where a member is in very poor health, the Pensions Ombudsman found that there was no financial loss, but directed the employer to pay to the member's estate £1,000, in addition to the existing award of £2,000, in compensation for the distress and inconvenience it had caused to the member.

Principal Civil Service Pension Scheme (PCSPS) (CAS-49845-F5B8)

Not upheld - a complaint by a member of the PCSPS in relation to an overpayment resulting from an abatement error.

In this decision the Pensions Ombudsman considers the different defences to recovery of an overpayment and concludes that the member in this case did not have a defence. The ombudsman also confirms that, because the PCSPS is a statutory unfunded scheme with no trustees and no trust, it is necessary to rely on equitable set-off (instead of equitable recoupment) to support the recovery of an overpayment by reducing future pension payments.

House of Commons Library briefing papers | New and updated

The House of Commons library has published or updated the following briefing papers, which might be of interest to public service pension schemes and employers:

• Sanctions against Russia
• Rising cost of living in the UK
• Queen's speech 2022
• The gender pay gap
• The gender pensions gap
• Non-binary gender recognition: law and policy
• New business support measures: Corporate Insolvency and Governance Act 2020

This newsletter covers developments relating to public service pensions in England and Wales, with a focus on the Local Government Pension Scheme.